If you follow the news, you may be hearing about how recent changes in the tax code may impact how much Americans receive as a tax refund this year. With tax filing season upon us, now is the time to analyze your tax bill. Whether you end up owing money or receiving a refund, here are four mistakes you want to watch out for as you prepare your taxes:
Mistake #1: Filing taxes the same way each year. Tax laws are subject to change, so it’s important to do your research before filing your tax return. This is particularly true this tax season. At the end of 2017, sweeping federal tax reform legislation made, in part, significant changes to individual income tax provisions that are generally first effective for your 2018 federal income tax return. Prioritize reviewing the changes and consider discussing your situation with a tax professional.
Mistake #2: Ignoring the size of tax overpayment. A large tax refund may indicate you had more of your income than necessary withheld from your wages in 2018. Consult a tax professional to determine whether you should adjust the allowances you claim on Form W-4, Employee’s Withholding Allowance Certificate, so that you keep more of your paycheck upfront. Increasing your cash flow throughout the year can give you the chance to save or invest money earlier and on a regular basis, which in turn can provide you the potential to earn compound interest.
Mistake #3: Treating a refund like an unexpected windfall. If you receive a refund it is more than a pleasant surprise – it’s income you’ve worked hard to earn. Decide what to do with your refund using the same diligence you apply to your regular paycheck.
Mistake #4: Failing to invest in yourself. Receiving a refund is an opportunity to make progress on one or more of your financial goals. For example, you could save the money in a retirement account or college savings plan. Or, you could spend it on a long-term care insurance policy or the down payment on a vacation home.
For more tips and tricks on how to manage your taxes and use a potential tax refund wisely, consult a financial advisor and tax professional in your area.
Andrew R. Petty, CRPC®, APMA®, is a Private Wealth Advisor with Marlowe, Petty & Associates, a private wealth advisory practice of Ameriprise Financial Services, Inc . He offers fee-based financial planning and asset management strategies and has been in practice for 16 years. To contact him, please call 407-249-4006, visit his website at www.marlowepetty.com or stopover at his office at 10917 Dylan Loren Circle, Suite A, Orlando, FL 32825.
Ameriprise Financial Services, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
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